By Yeo Dossina, Head of Economic Policy and Research, African Union Commission, Arthur Minsat, Head of the OECD Development Centre’s Unit for Africa, Europe and Middle EastandRodrigo Deiana, Consultant, OECD Development Centre
Africa’s value chains hold the key to unlocking its productivity, deepening its economic integration, and strengthening its resilience to shocks. Yet regional value chains accounted for just 2.7% of Africa’s total value chain participation in 2019, compared to 26.4% in Latin America and the Caribbean and 42.9% in developing Asia according to the latest edition of Africa’s Development Dynamics, a joint report by the African Union Commission and the OECD Development Centre.
Africa is a resource-rich continent, specialising in fuel, mineral and agricultural exports. Statistics on revealed comparative advantage (RCA) show that Africa exports proportionally more primary products than most other regions. Crude materials, which include ore, metal, wood, cotton and other raw textiles, are the continent’s dominant product category, followed by tobacco, various agricultural products and fuel. One consequence of specialising in primary product exports is that other countries get to enjoy the benefits of the value they add to these raw materials. These benefits can range from higher profits for their corporations to a more diversified industrial base and consequently better insulation from economic shocks, as well as a more highly skilled, higher-earning workforce.
By Eyerusalem Siba, Economist and international expert in private sector development, spatial industrial policies and sustainable urbanisation
The Covid-19 pandemic and associated containment measures hit businesses hard, exposing them to record levels of uncertainty, disrupting value chains, and reversing countries’ hard-earned progress in economic and social development. The knock-on effects of these disruptions on GDP, foreign direct investment (FDI), trade and industrial production have been highest among globally integrated economies that have smaller domestic markets, rely heavily on vulnerable sectors and have limited capacity to adjust.
By Renato Baumann, Co-ordinator, International Co-operation, IPEA, Brazil
Developing economies often face a common challenge: after a period of rapid growth they experience a slowdown in both growth and productivity, falling into what has come to be known as the ‘middle-income trap’. Signing preferential trade agreements and participating in global value chains are two common recommendations presented to countries facing the middle-income trap, and are often seen as intertwining processes. Moreover, regional integration is gaining momentum as an enabler of value chains. However, although regional movement of goods facilitated by regional integration might be necessary, it is not the only condition to ensure production in value chains.
By Dr Linda Yueh, Economist at Oxford University, London Business School, and LSE IDEAS, and author of “The Great Economists: How Their Ideas Can Help Us Today”
This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.
The immediate shock of the COVID-19 pandemic on world trade and investment is apparent in the latest report of the World Trade Organisation (WTO), which expects global trade to fall by an unprecedented 13 to 32 per cent this year.
The WTO points out that all regions will experience double digit declines in trade, which will be worse than during the global financial crisis a decade ago. The global trade body also stresses that there will “steeper falls in products with complex supply chains, such as electronics and automobile products.” This underscores that COVID-19 is both a “supply shock” and a profound demand shock. Finally, the WTO expects a recovery in trade volumes is possible in 2021, but it will depend on the extent of the pandemic and the effectiveness of policy measures to address the shock.
Even as global trade might recover within a year, there are potential medium-term effects from the COVID-19 pandemic, notably, around supply chains and associated cross-border investment. It’s challenging to map out the impact of COVID-19. But the supply chain disruptions are on the back of a tense period of trade restrictions and during a time when additive manufacturing (i.e., 3-D printing) have contributed to an emerging trend towards greater localisation of supply chains. Continue reading “Localisation of production: COVID-19’s medium-term impact”
Not all factories are the same. Today, their differences are bigger, more impressive and carry far-reaching implications for development in developing economies. Since the 1970s, industrial production has been organised in complex, multi-country networks of suppliers and providers. The conventional expectation was that this trend would be conducive to growing homogeneity, with converging techniques of production, salaries, standards and business organisation in the “world factory” system. However, as things do not often go “by the book”, manufacturing today encompasses far different realities. China has become the world’s leading manufacturing country. Early industrialisers have built complex value chains, delocalising non-core manufacturing activities to developing economies with relatively lower labour costs and growing domestic markets. The result: manufacturing is a collection of deeply different systems. And differences exist even within the same sector. Just look at the textiles industrial parks in Ethiopia that manufacture for and export fast fashion brands, such as Spain’s Zara. Or look at the robot-powered, fully automated smart factory of Adidas in Germany, which has been making customised mass production of textiles a reality in Europe since 2016. Consider the artisanal, luxury, on-demand, tailor-made production of Lamborghinis in Emilia Romagna, the highly automated export-oriented Audi production in Mexico, and the vertically integrated, only partially automated, domestic market-oriented BYD electric vehicle factory in Shenzhen, China. Continue reading “The future of manufacturing and development: three things to remember”
At the beginning of 2017, Lavazza launched ‘’Goal Zero’’ – a call to collective action amongst our many stakeholders to pursue the 17 Global Goals of Agenda 2030 for Sustainable Development. The company decided that co-operation, instead of going it alone, is fundamental for any significant results. Still, we faced the question of how to engage different stakeholders in one all-encompassing plan. For Lavazza, answering this means engaging our different stakeholders – employees, youth, suppliers and the surrounding community – using tailored communications tools. We believe that only a strong commitment originating from within Lavazza can, in turn, fuel external communications. So, here’s how we are proceeding: Continue reading “Turning a commitment into actions”
At Leather Wings, a small shoe-making outfit based in central Kathmandu, four women sit in a small room cutting up bright red cowhide imported from India. Next door, a dozen of their colleagues stitch the shapes together on sewing machines. The owner Samrat Dahal says the boots, designed by a German expat, sell via the Internet in India, China and Italy.
The company, founded in 1985, sums up some of the issues facing the Nepalese economy: entrepreneurial leaders at the helm of a committed workforce making a competitive and quality product for which overseas demand is ample. The problem isn’t finding buyers; it’s scaling up production to meet that demand. Exports by the handful of players in Nepal’s shoe industry totalled only USD 23 million in 2015. The task of boosting production in Nepal is doubly pressing given that the country already meets the criteria to graduate from the least developed country (LDC) category, something that the government wants to happen as soon as 2022. Nepal’s productive capacity predicament is typical of many LDCs. Moving onto a path of long-term prosperity requires structural transformation that expands production via manufacturing, services and higher-productivity agriculture.
Chile is considered a success case, and Chileans today are much better off than a decade ago. However, inequality is persistent and the knowledge base of the country is still limited. What the country also faces is a productivity challenge. Chile’s total factor productivity growth has decreased from 2.3% per year in the 1990s, to a yearly rate of 0.3% from 2000 to 2009, and then to -0.2% after 2010. These trends lasted through several government terms. So, what needs to be done to sustain the country on its path towards development? Continue reading “What can governments do to harness the potential of new technologies?”